As we’ve reported, the US government is spending money like a drunken sailor. But nobody really seems to care. Since Nov. 8, the US national debt has risen $1 trillion. Meanwhile, the Russell 2000 (a small-cap stock market index) has risen by 30%. Former Reagan budget director David Stockman said this makes no sense in a rational world, and he thinks the FY 2019 is going to sink the casino. In a rational world operating with honest financial markets those two results would not be found in even remotely the same zip code; and especially not in month #102 of a tired economic expansion and at the inception of an epochal pivot by the Fed to QT (quantitative tightening) on a scale never before imagined.’ Stockman is referring to economic tightening recently launched by the Federal Reserve. It’s not only the increasing interest rates. By next April the Fed will be shrinking its balance sheet at an annual rate of $360 billion and by $600 billion per year as of next October. By the end of 2020, the Fed will have dumped $2 trillion of bonds from its books. Stockman puts this into perspective.

In all of the talk about tax reform, nobody is considering the more fundamental problem facing America – the size and scope of the federal government. Peter Schiff has described the Republican tax plan as ‘tax cuts masquerading as reform.’ When it’s all said and done, Americans aren’t going to get tax relief. They are going to get big government on a credit card. The balance will come due down the road. The real issue is the total cost of government. In an article originally published on the Mises Wire, Ryan McMaken argues that if Republicans really want to ease the burden of government, they need to cut spending. Washington, DC is currently in the middle of the ‘tax reform’ process, which as Jeff Deist, points out, is ‘ a con, and a shell game.’ Tax reform proposals, Deist continues ‘always evade and obscure the real issue, which is the total cost – financial, compliance, and human – taxes impose on society.’ Tax reform is really about which interest groups can modify the current tax code to better suit their own parochial interests. The end result is not a lessened tax burden overall, and thus does nothing to boost real savings, real wealth creation, or real economic growth. It’s just yet another government method of rewarding powerful groups while punishing the less powerful ones. Not surprisingly then, the news that’s coming out of Washington about tax reform demonstrates that the reforms we’re seeing are only shifting around the tax burden without actually lessening it. The central scam at the heart of the matter is that DC politicians are more or less devoted to ‘revenue neutral’ tax reforms. That means if one group sees a tax cut, then another group will lose a deduction, or even see an actual increase in tax rates. This is why many middle-class families may be looking at a higher tax bill. David Stockman explains:

Washington, DC is currently in the middle of a the “tax reform” process, which as Jeff Deist, points out, is ” a con, and a shell game.” Tax reform proposals, Deist continues “always evade and obscure the real issue, which is the total cost – financial, compliance, and human – taxes impose on society.” Tax reform is really about which interest groups can modify the current tax code to better suit their own parochial interests. The end result is not a lessened tax burden overall, and thus does nothing to boost real savings, real wealth creation, or real economic growth. It’s just yet another government method of rewarding powerful groups while punishing the less powerful ones. Not surprisingly then, the news that’s coming out of Washington about tax reform demonstrates that the reforms we’re seeing are only shifting around the tax burden without actually lessening it. The central scam at the heart of the matter is that DC politicians are more or less devoted to “revenue neutral” tax reforms. That means if one group sees a tax cut, then another group will lose a deduction, or even see an actual increase in tax rates. This is why many middle class families may be looking at a higher tax bill. David Stockman explains: [O]n the eve of the House Ways and Means committee vote on the tax bill—-which will then be barricaded by a no amendments “closed rule” when it goes to the full house—–the smoking gun is already apparent. By 2027 (after the temporary $300 adult tax credit gimmick expires and all provisions of the Brady mark become fully effective), the middle quintile US family ( about 30 million filers between $55,000 and $93,000 of AGI) would find itself in a crap shoot.

While David Stockman stated early this year with resolute certainty that the debt ceiling debate would blow congress up and send the nation reeling over the financial precipice, I avoided jumping on the debt-ceiling bandwagon. While I was convinced major rifts in the economy would start to show up in the summer, I was not convinced they would have anything to do with the debt ceiling debate. If there is anything you can be certain of this in endless recovery-mode economy, it is that the US will just keep pushing its bags of bonds up a hill until it can finally push no more. So, I figured another punt down the road was more likely. The Debt Ceiling Debate that Didn’t Happen The reason I didn’t think that debate would blow apart is that Republicans have more than once experienced the political reality that comes from taking the nation to the brink of default or of shutting down government. Each time that kind of thing has happened, it has hurt Republicans far more than it has hurt Democrats. I doubted establishment Repubs (the majority) had the stomach to take us through another credit downgrade, though I’ve noted such an event was possible. Unsurprisingly to me, then, Congress did the only thing it seems to be capable of any more and just kicked that can a little further down the road with hardly a kerfuffle about it. Hurricane Harvey made things a lot easier for congress to kick the can again by providing a good excuse to dodge that unwanted debate on the basis of massive human suffering that truly did need tending to. Much-talked-about government shutdown put off for a better time The debate was entirely avoided even as the national debt broke over the $20 trillion mark this summer, keeping US debt at more than 100% of GDP, which is the stratosphere we’ve been in since 2011. A group of progressive economists affiliated with the University of Massachusetts predicted in 2013 that a debt burden [that reaches 90% of GDP for five years] would result in an annual growth rate of just 2.2 percent, which means economic stagnation. (Reason.com) We’re already well past that five-year marker. Not surprisiing, then, that the Congressional Budgeting Office expects economic growth to stay at 1.8% through 2027.

I would hazard a guess that an increasing number of tax donkeys are considering dropping out as a means of increasing their happiness and satisfaction with life. Since federal income taxes are in the spotlight, let’s ask a question that rarely (if ever) makes it into the public discussion: what if the tax donkeys who pay most of the tax rebel? There are several likely reasons why this question rarely arises. 1. Most commentators may not realize that the vast majority of income taxes are paid by the top 10%–and that roughly 60% are paid by the top 4% of households. (A nice example of the Pareto Distribution, i.e. the 80/20 rule, which can be extended to the 64/4 rule.) As David Stockman noted in Trump’s 1,500-word Airball, “Among the 148 million income tax filers, the bottom 53 million owed zero taxes in the most recent year (2014), and the bottom half (74 million) paid an aggregate total of just $45 billion. So let me be very clear. There was still $4 trillion left in the collective pockets of these 122 million taxpayers – even after the IRS had its way with them! By contrast, the top 4% or 6.2 million filers paid $802 billion in Federal income taxes. That amounted to nearly 58% of total Federal income tax payments.”

Having raged against President Trump’s ‘1500-word-airball’ of a tax reform plan, the Reagan administration’s director of the Office of Management and Budget, David Stockman told CNBC this week that Wall Street is “delusional” for believing it will even be passed. “This is a fiscal disaster that when they [Wall Street] begin to look at it, they’ll see it’s not even remotely paid for. This bill will go down for the count,” said Stockman. He said White House economic advisor Gary Cohn and Treasury Secretary Steve Mnuchin “totally failed to provide any detail, any leadership, any plan. Both of them ought to be fired because they let down the president in a major, major way.” Stockman pulled no punches about President Donald Trump…

The following video was published by X22Report on Aug 20, 2017NAFTA negotiations begin, but there is one problem they are not transparent as promised, it is all being done in secrecy. It begins China is changing its investment tactics, they are pulling investment from the US and moving it into the belt and road. David Stockman warns that China’s move will create a red swan which will bring down the economy. Economist are now recommending to the central bank that once the economy enters a recession the central bank will need to implement negative interest rates.

Authored by David Stockman via The Daily Reckoning, It won’t be long now. During the last 31 months the stock market mania has rapidly narrowed to just a handful of shooting stars. At the forefront has been Amazon.com, Inc., which saw its stock price double from $285 per share in January 2015 to $575 by October of that year. It then doubled again to about $1,000 in the 21 months since. By contrast, much of the stock market has remained in flat-earth land. For instance, those sections of the stock market that are tethered to the floundering real world economy have posted flat-lining earnings, or even sharp declines, as in the case of oil and gas. Needless to say, the drastic market narrowing of the last 30 months has been accompanied by soaring price/earnings (PE) multiples among the handful of big winners. In the case of the so-called FAANGs + M (Facebook, Apple, Amazon, Netflix, Google and Microsoft), the group’s weighted average PE multiple has increased by some 50%.

Pundits and government officials keep telling us the economy is strong. Everything is great. After all, GDP is growing. But a lot of people recognize things aren’t all that great. Some prominent economic analysts have said a major crash is looming. Nobel Prize winning economist Robert Shiller called stock market valuations ‘concerning’ and hinted that markets could be set up for a crash. Several other notable economists have recently expressed concern about surging stock markets, particularly in the US. Marc Faber has predicted ‘massive’ asset price deflation – possibly of a drop of as much as 40% in stock market value. Billionaire investor Paul Singer recently said the financial system is not sound. And former Ronald Reagan budget director David Stockman said we should get ready of ‘fiscal chaos.’ So, how is it that some see a meltdown on the horizon while most of the mainstream sees nothing but unicorns and roses? If the economy is growing, how can anybody things recession is right around the corner? Well, what if the mainstream doesn’t understand a recession? In the following article originally published at the Mises Wire, Frank Shostak explains why the standard ‘two consecutive quarters of negative GDP’ is not a good definition for recession.

On July 10, 2007 former Citigroup CEO Chuck Prince famously said what might be termed the ‘speculator’s creed’ for the current era of Bubble Finance. Prince was then canned within four months but as of that day his minions were still slamming the’buy’ key good and hard: ‘When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing,’ he said in an interview with the FT in Japan. We are at that moment again. Only this time the danger of a thundering crash is far greater. That’s because the current blow-off top comes after nine years of even more central bank policy than Greenspan’s credit and housing bubble. The Fed and its crew of traveling central banks around the world have gutted honest price discovery entirely. They have turned global financial markets into outright gambling dens of unchecked speculation. Central bank policies of massive quantitative easing (QE) and zero interest rates (ZIRP) have been sugar-coated in rhetoric about ‘stimulus’, ‘accommodation’ and guiding economies toward optimal levels of inflation and full-employment.

‘It is our true policy to steer clear of permanent alliance with any portion of the foreign world.’ That was George Washington’s Farewell Address to us.The inaugural pledge of Thomas Jefferson was no less clear in stating, ‘Peace, commerce, and honest friendship with all nations-entangling alliances with none.’So when Woodrow Wilson embarked the nation on the route of Empire in April 1917 and FDR launched the domestic interventionism of the New Deal in March 1933, the die was cast. It was only a matter of time before the disconnect between a robust Big Government and the structural infirmities of Madison’s republican contraption resulted in a deadly impasse.The Fed has now backed itself into a corner and is out of dry powder. Even its Keynesian managers are determined to normalize and shrink a hideously bloated balance sheet. The current account has no basis in sustainable or sound finance.The time of fiscal reckoning has come. With the financial sedative of monetization on hold, bond vigilantes will soon awaken from their 30-year slumber.

GOLD: $1246.00 UP $3.50 Silver: $16.38 UP 5 cent(s) Closing access prices: Gold $1245.00 silver: $16.36 SHANGHAI GOLD FIX: FIRST FIX 10 15 PM EST (2:15 SHANGHAI LOCAL TIME) SECOND FIX: 2:15 AM EST (6:15 SHANGHAI LOCAL TIME) SHANGHAI FIRST GOLD FIX: $1247.75 DOLLARS PER OZ NY PRICE OF GOLD AT EXACT SAME TIME: $1239.50 PREMIUM FIRST FIX: $8.25 xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx SECOND SHANGHAI GOLD FIX: $1246.52 NY GOLD PRICE AT THE EXACT SAME TIME: $1238.10 Premium of Shanghai 2nd fix/NY:$8.42 xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx LONDON FIRST GOLD FIX: 5:30 am est $1236.55 NY PRICING AT THE EXACT SAME TIME: $1237.70 LONDON SECOND GOLD FIX 10 AM: $1238.70 NY PRICING AT THE EXACT SAME TIME. $1239.15 For comex gold: JULY/ NOTICES FILINGS TODAY FOR APRIL CONTRACT MONTH: 0 NOTICE(S) FOR NIL OZ. TOTAL NOTICES SO FAR: 149 FOR 14900 OZ (.4634 TONNES) For silver: JULY 34 NOTICES FILED TODAY FOR 170,000 OZ/ Total number of notices filed so far this month: 2956 for 14,780,000 oz XXXXXXXXXXXXXXXXXXXXXXXXXXXXXX end The key event today was the revelation that Mueller is probing Trump’s business interests around the globe. That sparked gold and silver to rebound after the bankers had targeted our precious metals to the dumpster today. That plan was foiled with the Mueller news. I would really like you to read the Stockman commentary at the bottom of my commentary. It is a must read.. Let us have a look at the data for today xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx In silver, the total open interest FELL BY 1845 contract(s) DOWN to 207,844 DESPITE THE TINY RISE IN PRICE THAT SILVER TOOK WITH YESTERDAY’S TRADING (UP 4 CENT(S). TODAY WE HAD NEW SPECULATOR LONGS ENTER THE MARKET WITH THE BANKERS SUPPLYING THE NECESSARY PAPER. THE BANKERS ARE HAVING AN AWFUL TIME TRYING TO SHAKE THE SILVER LEAVES FROM THE SILVER TREE. HOWEVER SOME SILVER LONGS DID DEPART In ounces, the OI is still represented by just OVER 1 BILLION oz i.e. 1.061 BILLION TO BE EXACT or 152% of annual global silver production (ex Russia & ex China). FOR THE NEW FRONT MAY MONTH/ THEY FILED: 34 NOTICE(S) FOR 170,000 OZ OF SILVER In gold, the total comex gold FELL BY 2948 CONTRACTS DESPITE THE RISE IN THE PRICE OF GOLD ($0.50 with YESTERDAY’S TRADING). The total gold OI stands at 481,256 contracts. THE BANKERS ARE STILL LOATHE TO SUPPLY THE GOLD PAPER AND WISH TO COVER MORE OF THEIR SHORTS. SOME NEWBIE SPEC LONGS STARTED TO ENTER THE GOLD COMEX ARENA AGAIN. THE PLETHORA OF DATA RELEASED ON FRIDAY SHOWING RETAIL SPENDING BASICALLY COLLAPSING ALONG WITH SMALLER INFLATION NUMBERS MUST BE SCARING OUR BANKERS TO DEATH. we had 0 notice(s) filed upon for NIL oz of gold. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx With respect to our two criminal funds, the GLD and the SLV: GLD: Today no changes in gold inventory Inventory rests tonight: 816.13 tonnes for 5 consecutive days, gold rises appreciably and yet gold inventory drops at the GLD (In the last 5 days gold rises $27.70 and yet GLD inventory collapses by 16.26 tonnes) GLD IS A MASSIVE FRAUD/INVENTORY SHOULD BE RISING NOT FALLING. SLV Today: : WE HAD A HUGE CHANGES IN SILVER INVENTORY TONIGHT/A WITHDRAWAL OF 945,000 OZ WITH SILVER UP AGAIN BY 5 CENTS INVENTORY RESTS AT 347.121 MILLION OZ

Ben Bernanke’s successors at the Fed and other global central banks still don’t get it. Falsified debt prices do not promote macroeconomic stability. They lead to reckless credit expansion cycles that eventually collapse due to borrower defaults. We’re now seeing that play out in the auto sector, especially since anyone who can fog a rearview mirror has been eligible for a car loan or lease. If that reminds you of the sub-prime housing disaster, you’d be right. That, in turn, will make the looming collapse even worse, due to the sudden drastic shrinkage of credit in response to escalating lender losses.

Benjamin Franklin supposedly said, ‘In this world nothing can be said to be certain, except death and taxes.’If old Ben were still around he would surely add ‘debt’ to his famous saying. Indeed, a recent Experian study of its 220 million consumer files actually proves the case.It turns out that 73% of consumers who died last year had debts which averaged nearly $62,000. In addition to the kind of debt that apparently always stays with you – credit cards and car loans – it also happened that 37% of the newly deceased had unpaid mortgages and 6% still had student loans with an average unpaid balance of $25,391!Once upon a time people used to have mortgage burning ceremonies when later in their working years the balance on the one-time loan they took out in their 30s to buy their castle was finally reduced to zero.And there was no such thing as student loans, and not only because students are inherently not credit worthy. College was paid for with family savings, summer jobs, work study and an austere life of four to a dorm room.No more. The essence of debt in the present era is that it is perpetually increased and rolled-over. It’s never reduced and paid-off.

During a recent interview on CNBC’s Power Lunch, Nobel Prize winning economist Robert Shiller called stock market valuations ‘concerning’ and hinted that markets could be set up for a crash. Several other notable economists have recently expressed concern about surging stock markets, particularly in the US. Marc Faber has predicted ‘massive’ asset price deflation – possibly of drop of as much as 40% in stock market value. Billionaire investor Paul Singer recently said the financial system is not sound. And former Ronald Reagan budget director David Stockman said we should get ready of ‘fiscal chaos.’ Now Shiller has weighed in, pointing out that market valuations are at ‘unusual highs’ and noting that if history is any indication, it could foreshadow an upcoming crash.

Shiller and fellow economist John Campbell developed the cyclically adjusted price-earnings ratio (CAPE).

Authord by Craig Wilson via The Daily Reckoning, David Stockman joined Boom Bust to discuss the massive storm that is building and about to slam into Wall Street. During the discussion Stockman reveals what he believes is ahead for the stocks in the market and the economy. The interview began with the Boom Bust host asking the acclaimed author about his concern surrounding a government shutdown. David Stockman began ‘we’re in the midst of the biggest political train wreck in modern history… There will be no governance in Washington. There will be no tax bill, stimulus or infrastructure.’ ‘We’re heading for an expiration of the debt ceiling and running out of cash that will create an enormous crisis by August or September. They’re not going to be able to cope with it.’

David Stockman routinely refers to President Trump as the ‘Great Disrupter’. But this is not a bad quality, he insists. Rather, it is a necessary one: Stockman argues (my paraphrasing) that Trump represents the outside force, the externality, that tips a ‘world system’ over the brink: It has to tip over the brink, because systems become too ossified, too far out on their ‘branch’ to be able to reform themselves. It does not really matter so much, whether the agency of this tipping process (President Trump in this instance), fully comprehends his pivotal role, or plays it out in an intelligent and subtle way, or in a heavy-handed, and unsubtle manner. Either serve the purpose. And that purpose is to disrupt. Why should disruption be somehow a ‘quality’? It is because, during a period when ‘a system’ is coming apart, (history tells us), one can reach a point at which there is no possibility of revival within the old, but still prevailing, system. An externality of some sort – maybe war, or some other calamity or a Trump – is necessary to tip the congealed system ‘over’: thus, the external intrusion can be the catalyst for (often traumatic) transformational change. Stockman puts it starkly: ‘the single most important thing to know about the present risk environment [he is pointing here to both the political risk as well as financial risk environment], is that it is extreme, and unprecedented. In essence, the ruling elites and their mainstream media megaphones have arrogantly decided that the 2016 [US Presidential] election was a correctible error’. But complacency simply is endemic: ‘The utter fragility of the latest and greatest Fed bubble could not be better proxied than in this astounding fact. To wit, during the last 5,000 trading days (20 years), the VIX (a measure of market volatility) has closed below 10 on just 11 occasions. And 7 of those have been during the last month! … That’s complacency begging to be monkey-hammered’, Stockman says.

‘Markets go up on an escalator, they come down on an elevator. This is the most hideously overvalued market in history.’ David Stockman Last week’s action by the Fed was an effort to restore normalcy, but in the context of extraordinary action by the central bank. When you tell markets that the risk free rate is zero, it has profound implications for the cost of debt and equity, and resulting in different asset allocation decisions. Ending this regime also has profound implications for investors and markets. In the wake of the financial crisis, some investors found comfort in the fact that when risk free interest rates are at or near zero, the discounted future value of equity securities was theoretically infinite. Markets seem to have validated this view. But to us the real question is this: If a company or country has excessive and growing amounts of debt outstanding against existing assets, what is the value of the equity? The short answer is non-zero and declining. But hold that thought. Reading through Grant’s Interest Rate Observer over the weekend, we were struck by the item on China Evergrande Group (OTC:ERGNF), a real estate development company and industrial conglomerate that has reported negative free cash flow since 2006, but has made it up in volume so to speak. The stock is up over 200% this year, Grant’s reports. The real estate conglomerate has its hands into all manner of businesses and seems to typify the China construction craze.

The Deep State is escalating its war on President Trump but the Wall Street partiers apparently couldn’t care less. When the machines tagged 2402 on the S&P 500 yesterday, it was surely a historic case of ‘look ma, no hands!’It’s hard to imagine what more will be needed to ignite an eruption of fear and panic in the casino amidst Wall Street’s record and wholly irrational state of somnolence.After all, the Fed is sidelined and out of dry powder. The Red Ponzi is tottering. The U.S. retail sector is descending into an apocalypse. The giant auto bubble is fracturing. The Trump Stimulus is dead in the water, and Washington is heading for an extended stretch of complete dysfunction and acrimonious combat.And if that isn’t that enough to upset the apple cart – there are a lot more headwinds coming down the pike.But the point is the insane governance process in Washington, which is completely unhinged, is combined with a level of insane complacency on Wall Street. Which is literally off the charts.